Brown has a point

March 6th, 2014 at 2:00 pm by David Farrar

Stuff reports:

Making all Aucklanders pay a council income tax may help elderly people in affluent areas who can’t afford their , mayor says.

The current system is “inherently unfair” on people living on fixed incomes and paying high rates because of the value of their properties in areas like Devonport-Takapuna, Brown says.

Introducing an income-related tax for local council services that everyone pays is an option, he says.

Only property owners pay rates but the council is spending money on infrastructure and services for everyone, Brown says.

I’ve long thought that a local income (or sales) tax could be a fairer way of funding local government than a property tax.

Arguably it would lead to greater fiscal restraint. Councils are always increasing rates without too much backlash because the average householder doesn’t know how much of the change in their rates bill is due to increased Council spending and how much due to a change in relative house values.

An actual local income tax would be much more transparent and hopefully there would be such a backlash against increasing it that Councils would then adjust expenditure to fit within their income (as central Govt does) rather than their current practice of working out everything they want to spend and then just setting rates at a high enough level to fund it.

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55 Responses to “Brown has a point”

  1. jp_1983 (213 comments) says:

    but Auckland Council will have both.
    Income tax for working and the rates bill for owning your property

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  2. Huevon (222 comments) says:

    Some lofty ideals – but in practice they will just collect more tax, on top of what is already taken.

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  3. straya (80 comments) says:

    I’ve never understood the explanation, or excuse, that rates have gone up because of an increase in property values.

    Let’s use some simple numbers to demonstrate the principle. Say the council needs to raise $500 million in each of two consecutive years to meet its annual expenditure. Property prices of all rateable properties increase by 10% at the beginning of the second year. Does the council suddenly need another $50 million? Of course not, they could simply drop the rateable value applied for each $10,000 in property value by about 9% or so to ensure that the revenue raised is the same.

    Of course, increases in property values provide a convenient excuse for councils to raise and then waste more money each year, and too few people have a sufficient grasp of basic mathematics to understand that their taxes are being increased by stealth.

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  4. wreck1080 (3,923 comments) says:

    straya : auckland house price increases have differed by area. some streets have probably seen quadrupling (or more, my parents place has gone up nearly 1000% since the mid nineties) of values within just a few short years and others may have only seen 50% growth for example.

    This affects valuations for different areas, and thus the rates calculation is affected.

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  5. Dave_1924 (116 comments) says:

    DPF – BOLLOCKS!!!!! We need another tax on income like a hole in the head.
    What we need is for Councils and Central Government to live within their means.
    The Local councils particularly get away with murder raising rates every year – without trimming the fat out of their budgets. Why do we need so many council bureaucrats earning large salaries?
    Besides which you have quoted Len in what is a lie – its not only property owners who pay rates. Yes people who own their own residences/properties pay rates, But renters pay rent which the landlord uses to meet expenses on that property and make a profit – those expenses include rates.
    So implying non-property owners are not paying their share is an out and out LIE. We pay our way every week, fortnight or month when we pay out rent to our landlord. Saying we should then pay another tax via a regional income or sales tax is building an argument based on a fallacy
    I concur with your argument about fiscal constraint but the current rating system is fine – what is not fine is the lack of oversight and accountability at Town Hall.
    EDIT: correcting a couple of typos

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  6. burt (8,275 comments) says:

    From stuff;

    Options could include funding through income tax, GST, user pays charges, or bed taxes from hotel.

    Bed taxes from Hotels… that would require accurate reporting of hotel room usage – already a problematic issue …

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  7. tvb (4,430 comments) says:

    Rates are broadly based on wealth. But if people cannot afford to live in their expensive homes they can downsize and many do

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  8. redqueen (567 comments) says:

    A more logical solution would be to detach rates from ‘house value’ and move them to a size principle (say, 3 or 4 grades – primary buildings, secondary buildings, building area land, and farmland/undeveloped land). The council can then just set the rates based on the per metre areas involved. So if I have a 180m house, with a 700m section, I’d get taxed at (say) $5 per metre of house and $2 per metre of land, paying about the same amount I currently pay in rates. The difference is that you’d have to tell me if my per metre(s) were going up, there would be no ‘value creep’ and the compliance cost would be minimal (as council knows/should know most of the sizes involved). The cost of complying with a local tax would be a pain and, to be perfectly honest, these buggers aren’t trustable with one tax, so giving them two or three sounds insane.

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  9. GTP (42 comments) says:

    Based on the income of the resident or the owner?

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  10. chris (647 comments) says:

    I’ve never liked the rating system (seriously, it’s based on the *value* of the property?!) but I like an income tax even less. And no doubt Len means to double dip and have both.

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  11. Nigel Kearney (1,019 comments) says:

    The good thing about the current system is that it is broad. Everyone pays unless they are in a state house with rent linked to their income. Making it based on income is a big step towards the left wing dream scenario of more than 50% of voters paying little or nothing.

    Also GTP’s question above. They cannot tax the income of everyone with an Auckland address because it’s easy to rent in Auckland and tell the IRD your address is elsewhere. That means the income tax has to be linked to property. There is no way to obtain income details of the person living in a rental property. So it would have to be the owner’s income and the owner may be a company or trust. No idea how that can be made to work.

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  12. Ross Miller (1,704 comments) says:

    Heavens Forbid …. Brown, a socialist, is arguing for a fancy sort of Poll Tax. Lot a good it did Maggie when she tried it in the UK … and stupid old me thought ‘user pays’ was a swear word in the Labour Party lexicon.

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  13. unaha-closp (1,165 comments) says:

    The current system is “inherently unfair” on people living on fixed incomes and paying high rates because of the value of their properties in areas like Devonport-Takapuna, Brown says.

    Can someone please explain how it is “inherently unfair” of someone with $millions in tradeable assets getting a higher tax bill than someone with no assets?

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  14. Barnsley Bill (983 comments) says:

    I recently read a press release by Cameron Brewer which made me so angry I threw the newspaper across the Cafe.
    Basically he was having a bleat because the Hotchin house on Paritai drive was being rated on a 2 year old valuation and he was beside himself with anger that the house was only paying 65000 dollars per year in rates.
    65k, for a house, in New Zealand.
    Our rating system is the most fucked up tax in the whole basket of bad taxes that we are forced to pay.
    Len Brown has the kernel of a good idea, he got it hopelessly wrong of course and tried to dress it up as helping the elderly baby boomers in their mult million dollar mansions that smell of pee and cabbage.
    Why should I pay more to take a shit and have my roads clogged up with buses just because I have one more bedroom than my neighbour?
    The only fair way to raise revenue for municipal services is via a uniform annual charge on all adult citizens of the catchment area.
    He has a point when he talks about old people. Imagine this;
    two identical houses side by side, both paying 4k per year to the council. House number one has a retired widow who probably only craps weekly
    House number two has four adults in it, four people using at least four times more amenities than the widow, each effectively generating 1k per year year in rates versus the little old lady paying 4k.
    The whole system is unfair.
    Nobody will want to call it Poll tax but that is the fairest way to raise revenue.
    Put an income threshold in to provide a rebate system for the massive swathes of Auckland who suck off the rest of the country and you will have a robust fair suystem that treats everybody the same.

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  15. Warren Murray (311 comments) says:

    Yet again Df shows that he doesnt understand the local government funding framework. Rates dont go up because of increases in house prices.

    As for an income tax being more transparent in revealing local government waste, that’s bollocks too. As incomes rise, Council’s would receive more money. Thats why Len and others want it.

    [DPF: I never said they did. I talked about individual rates going up if their relative value changes]

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  16. eziryder (15 comments) says:

    Sounds like Maggie T’s poll tax to me, eminently fair, but when have taxes ever been fair? I recall that the principle of local body taxes being levied matching services being rendered was struck down on appeal. So it will be business as usual, the ability to pay.

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  17. davidp (3,581 comments) says:

    Geography-related income tax would be a nightmare to administer. Say you own a home in Auckland and a beach house somewhere remote, like the Coromandel. Do you pay one income tax or two? If one, what happens to the council that misses out? Does that mean people with two homes get to game the system and officially live in the cheapest location? What about students at university… can they pretend to live at the parent’s home in a rural area rather than in central Auckland?

    This needs a register of people and where they live. That needs continuous updating. Europeans are used to this… The UK Poll Tax included questionnaires for every property asking for lists of occupants, and other European countries require residents to “apply” for permission in a council’s area and there are lengthy forms to fill in. I don’t see us implementing anything that intrusive in NZ. You can also add either another billion dollars to IRD’s redevelopment of their ICT systems, or triple that if every council needs to set up its own tax collection department.

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  18. burt (8,275 comments) says:

    davidp

    You can also add either another billion dollars to IRD’s redevelopment of their ICT systems, or triple that if every council needs to set up its own tax collection department.

    Perfect – full employment – people employed to tax people so people can be paid taxing people. Socialist nirvana.

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  19. martinh (1,257 comments) says:

    Local income or sales tax, i have no idea what that means.
    Sounds a lot easier for tax avoidance than property values.
    Sounds like foreign landowners would love it.

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  20. freethinker (691 comments) says:

    I agree the current system of collecting local taxes based on a properties value is so flawed to border on fraud. Councils provide services which people use or consume so the cost of those services should be borne by those using them, call it local income tax, poll tax whatever the name is irrelevant. Going to such a tax could remove the majority of staff employed in a council rates collection office by imposing the charge through the IRD who could make the charge based on a persons provable main residence with the money collected being remitted to the local council of the taxpayers residential address. In addition I suggest a local council would have to resign and offer itself for re election if they wished to put rates up beyond the CPI which itself needs reviewing to conform more closely to the basket of costs people actually incur with a weighting on those costs that are compulsory like non tradebales – power being an obvious example. An intended advantage of this would be to sensitize councilor and staff alike to the benefit of getting the best value for every dollar spent and release collection staff to more productive employment although I fail to think what that would be given the attitude shown by some i have dealt with.

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  21. alloytoo (546 comments) says:

    I’ve no objection to replacement tax, as far as I can tell Len is merely looking for an alternative revenue stream to pay for his train set.

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  22. Mark (1,488 comments) says:

    As the Greeks found out Property taxation is very efficient and difficult to avoid.

    However when you have local government expenditure out of control Rates become a significant problem for everyone not just the fixed income ratepayers who have an expensive property.

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  23. Mobile Michael (452 comments) says:

    How would it work for someone who works outside the city of residence? How about a company with nationwide representation, calculating that would be a mess. Every time a person transfers to a new city the payroll department would need to update records, and who would be responsible for ensuring accuracy?

    Local sales taxes are also a new, complex and difficult method of collection.

    The current system works better than all the others so needs to bd retained.

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  24. Manolo (13,837 comments) says:

    No, Lecher Len does not have a point.

    Higher taxes are never the solution. You know full well that once the new one is in, existing taxes will never be abolished to make up for it.

    The state’s greed is endless. Remember the GST increase inflicted on us by Labour Lite.

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  25. rangitoto (247 comments) says:

    Cripes looks like kiwiblog has been hacked by the stranded

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  26. wreck1080 (3,923 comments) says:

    len will only be proposing this in anticipation of extracting more money for council and his non-elected maori buddies.

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  27. igm (1,413 comments) says:

    It is astounding to see socialist Lecher Len come out trying to appease ratepayers. I think he is trying to consolidate his position as mayor, even though it must be tenuous, although media are pushing his barrow once more. It is about time there was a fairer way of apportioning costs of infrastructure etc., it is too much to allocate ratepayers only. One must look at Porirua, South Auckland, etc., see the fancy amenities, most of them damaged by vandals, then assess where they came from . . . you guessed it, outlying over-rated suburbs, where they have very little, maybe a bus stop. This is what happens when everyone in sundry gets the vote in local body elections, they get hijacked by the left, and very few of these snouters are ratepayers.

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  28. lastmanstanding (1,297 comments) says:

    For once it appears I might and I say might agree with Brown. the fact is we older folks aren’t responsible individually for the increase in the value of our homes and we want to continue living in them not be forced out by rapacious council rate increases.
    I have lived at the same address for the past 35 years. My rates have increased at 250% of the consumer price index over that period.

    So various Councils have taken $2.50 off me for every $1 increase in the inflation rate over the period. have I gotten value from my rates.
    Go figure. These Councils and their Town Clerks and staff have wasted the extra $1.50 on enriching themselves and their mates via the corrupt contracting system ( with emphasis on the CON)
    Councils especially Auckland where I live are out of control. They have no competition so they charge what they like and they charge like wounded bulls.

    So Loppy Lens scheme( as long as it REPLACES my current rates instead of INCREASING my current rates looks like an idea worthy of further investigation.
    Trouble is I don’t trust Brown as far as I could kick his sleazy arse.

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  29. Hamish_NZ (46 comments) says:

    Brown doesn’t have a point, council rates being based on property value is the one way of signaling to people with low or zero incomes that they need to exit owning their property and move to a cheaper one, or become a renter. If you have a poll tax it just encourages people (mainly elderly) to stay in a house they can no longer afford, as their council costs suddenly drop as the rest of the city is subsidising them. Frankly I think the taxpayer subsidises elderly more than enough in NZ as it is without doing more so.
    Plus a poll tax instead of/in conjunction with lower rates would increase the housing crisis by encouraging elderly people to stay in houses longer than they should otherwise meaning that house prices will stay overly inflated and creating a market distortion.
    House prices would be far lower if idiots stopped distorting the market by encouraging elderly to stay in houses for longer than they should. Non means tested super, and state subsidised rest home care does the same thing. They actively encourage elderly into maintaining house ownership when those houses could be better owned and maintained by more productive members of the economy.

    It’s simple if you can no longer afford the costs of maintaining an expensive asset (including a house) then you should sell it to someone who can, and move elsewhere.
    Stop this crazy socialism crap.

    Edit: spelling

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  30. chris (647 comments) says:

    The answer is simple. Stop increasing spending every freaking year on frivolous things. Go back to just doing core council services and cut costs. Then there would be no need for new/alternative means of extracting their pound of flesh. Heavens forbid, we might even see a *decrease* in rates…

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  31. chris (647 comments) says:

    Oh and one other thing, why is it we never see anything reported in the media about how much debt Auckland Council has and how much it is increasing by every year? I have the feeling most Aucklanders have no idea their council is swimming in a crap load of debt.

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  32. greybeard (62 comments) says:

    Stuff that idea: if I lived in Auckland I would strongly object to anyone in any part of the Council having access to details of my income. Presumably Brown would see the scheme being administered by the Council and not IRD.
    Rates should be based in some way on the number of people who have to be accommodated by the city’s infrastructure, not some value placed on a property.

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  33. campit (467 comments) says:

    No thanks, based on the paperwork alone, and the obvious loop holes of people suddenly residing in their holiday homes out of Auckland.

    Arguably it would lead to greater fiscal restraint. Councils are always increasing rates without too much backlash…

    You’re kidding, right?

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  34. Rick Rowling (813 comments) says:

    Please, no more sales taxes until we sort out how to not give overseas suppliers an instant 15% price advantage over local suppliers.

    Talk about perverse incentives.

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  35. Scott Chris (6,150 comments) says:

    Brown has a point

    No he doesn’t. Mind you a local government income tax would alleviate some of the burden us poor old property owners must bear, what, with no capital gains tax and record low interest rates and rapidly appreciating property values. Not to mention the availability of rates rebates for people who earn under a certain amount, or reverse mortgages to free up bound equity. And heck, if we happen to rent out our property we just pass the rates cost on to the peasants anyway.

    Oh the suffering!

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  36. wf (447 comments) says:

    Reminds me of the elderly couple in their 80’s. When they were young and poor, they bought a beachside section on a gravel road way north of Sydney, put a modest cottage on it, and lived there happily all their lives. By the 80’s their cottage had been surrounded by posh expensive places and they suddenly had a property that was valued at $ 6million. They didn’t want to move, but they couldn’t afford the rates. When it came to selling they found that the stamp duty would render them just as poor as they had been 60 years before.

    I believe they made arrangements to stay on the property with accumulated debts being deducted from the estate which in my opinion was a suitable solution.

    IMO councils should be limited to imposing rates for the purposes of running their core businesses, and any other expenditure should be proposed to the ratepayers on case by case basis.

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  37. Camryn (543 comments) says:

    The deeper issue here is that Len, other politicians and many voters treat the city as a collection of *people*. It should be treated as a collection of *assets*.

    The traditional role of councils has been to provide services and infrastructure that allow individually owned assets to operate as a cohesive system, providing benefits to those individual asset owners. Therefore, it’s logical that individual asset owners pay for that. So, we have a rating system.

    The logic breaks down when the council starts doing festivals, community building… people stuff. I agree this type of stuff shouldn’t be paid for out of rates. It’d make most sense to just stop doing it, but otherwise a local sales tax is next best. Income tax requires residence verification. Sales tax just requires you to be conducting economic activity in an area… harder to fudge that. You aren’t going to drive to Hamilton to buy groceries to save just 1%.

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  38. Camryn (543 comments) says:

    No sympathy for older people being “forced out” of central cities (or what has become central city). If you are retired, move to the damn beach so that someone with a job can have a shorter commute. Property value is just the price signal for this. People earning will pay to live closer to their jobs and they want you out.

    This didn’t used to be a problem, but baby boomer think they’re too special and entitled to downsize… and many of them actually can afford not to. That’s a bigger driver of the property price equation than immigrants. Reduced supply of family homes near jobs because post-family, post-job boomers can afford not to leave.

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  39. RRM (9,933 comments) says:

    …hopefully there would be such a backlash against increasing it that Councils would then adjust expenditure to fit within their income..

    :lol: LOL – DPF made a funny!

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  40. slijmbal (1,236 comments) says:

    @davidp

    “and other European countries require residents to “apply” for permission in a council’s area and there are lengthy forms to fill in. ”

    Yup – had that in Holland but I remember a rather trivial process and, in practice, they had no ability to deny permission.

    I utterly resent that under pants down brown my rates have increased 10% p.a. with a decrease in services and in increase in debt with a potential huge increase in debt/rates courtesy of his train set that will never hit the North Shore never mind the stupid economics of trains in Auckland anyway. Local Governments are notoriously poor at fiscal control and need greater checks and balances.

    Local Government is about providing services/utilities and any fair system would be based on what is provided and not be based on wealth i.e. property values. It is the job of Central Government to determine any income/wealth based taxes.

    Poll taxes work in other regimes and would mean that Local Government could be made to have less control over rampant increases on their ability to tax, if done correctly.

    Of course, as many say, Len sees this as an addition to rates not a replacement so we need to fight against it unless it is made a replacement.

    For those of you railing against older people living in high value properties, if the tax (rates is a tax) was based on services provided then many more would be able to afford it and rightly so. Smells of the green eyed monster rather than any reasonable rationale.

    I noticed Len mentioned Takapuna and Devonport as he realises the North Shore is starting to hate him and he wants some votes/sympathy.

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  41. RRM (9,933 comments) says:

    Making all Aucklanders pay a council income tax may help elderly people in affluent areas who can’t afford their rates, mayor Len Brown says.

    The current system is “inherently unfair” on people living on fixed incomes and paying high rates because of the value of their properties in areas like Devonport-Takapuna, Brown says.

    Oh boo hoo. Life is so UNFAIR. :neutral:

    Seriously, FUCK old people who live in affluent areas and can’t afford their rates.

    Us young people have to live wherever we can afford to live.

    It’s the market, don’t you know.

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  42. Puzzled in Ekatahuna (346 comments) says:

    And so would everyone get a card, like a driver’s licence or whatever, to be occasionally checked to see if you are paid up and so entitled to use city council roads and footpaths and to stop Penny Bright in her tracks? :-)

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  43. UglyTruth (4,551 comments) says:

    Puzzled, please don’t give them ideas, the system is corrupt enough already.

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  44. Steve (North Shore) (4,564 comments) says:

    Can’t afford the Rates on your property and Len wants other Aucklanders to help out? This man is mad.
    This will only encourage upgrading to the top limit (as an investment) knowing that ‘someone else’ will pay your Rates.
    When I retire I might have enough money to buy a second hand Ferrari, but now way could I afford to insure it.
    Can I get Len to force Aucklanders to pay my premiums?
    You are fuckin mad Len Brown

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  45. OneTrack (3,114 comments) says:

    The deeper issue here is that Len, other politicians and many voters treat the city as a collection of wallets. Fify.

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  46. OneTrack (3,114 comments) says:

    Len, you need to go to a pyschiatrist to deal with your out-of-control addiction to spending other peoples money. Start slow. Try not spending money for 5 minutes. Then slowly build up from there.

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  47. PaulL (5,987 comments) says:

    @wf: seems to me you must be summarising that wrong. Stamp duty is about 2% max, so if you’re in a $6M house, don’t see how selling it will leave you worse off than before. By my maths you’d have $5.9M or thereabouts, and there’s a lot of houses you can buy in Australia for that money. Or instead, just rent a permanent berth on a cruise liner, and be done with it.

    I’m not in favour of a new tax. Just a way for Len to hide the fact he’s overtaxing. What we really need is some actual competition in local govt elections, and for those people who are “too busy” to vote to actually vote. That requires something to mobilise them. Any talk of a “Cameron Brewer for Mayor” campaign, along with “promise to decrease your rates by 10%”. Most people’d be up for that, surely?

    Maybe we should limit voting in council elections to those who pay the rates? No representation without taxation, that kind of thing. I presume at the moment that many of the hippies vote for crazy lefties, most of them figuring they don’t actually pay rates (their landlord does, or Housing NZ does). They’re probably too dumb to understand tax incidence theory.

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  48. tas (625 comments) says:

    Heavens no. It’s a pain in the arse to have different tax rates in different parts of the country. If I work for a company with offices in Auckland, Wellington, and Christchurch which city do I pay income tax in? Does an electrician who commutes from Hamilton to Auckland pay income tax in Hamilton or Auckland — his clients are exclusively in Auckland but his only address is in Hamilton?

    It’s administrative costs make as much sense as GST off fruit and veges. The advantage of property taxes is that it’s clear what geographic region property falls in.

    Local government should just spend less, rather than finding creative ways to fund their spending habits.

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  49. Harriet (4,975 comments) says:

    LOL……..So the left now likes the idea of Maggie Thatcher and a poll tax?[well I think it was Maggie]

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  50. PaulL (5,987 comments) says:

    @Harriet: a poll tax had every resident pay the same amount (e.g. $100 per resident). This proposal seems to be an income tax. Presumably those with no income don’t pay it, those who have more income pay more. Not really like a poll tax at all I think.

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  51. Ben Dover (526 comments) says:

    Brown is the Right Colour

    Probably smells like it also

    The Correct Definition is

    Mayor Excrement

    Another Tax
    What a Brain Child

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  52. deadrightkev (472 comments) says:

    The only financing model that I can see will work long-term for ratepayers and keep a lid on rates is this visionary model which was submitted by Sir Roger Douglas before we had more of the big government Auckland Super City disaster rammed through by John Key and Rodney Hide.

    http://betterdemocracynz.blogspot.co.nz/2009/07/sir-roger-douglas-on-supercity.html

    The power must be removed from the politicians and placed in the hands of the ratepayers, only then will we get genuine democracy in local government. The strange thing is that ratepayers can be very socially benevolent when they get to decide what should be spent on what in their local ward.

    Don’t blame Len Brown. He is simply working within the mess he was gifted. Blame the architects of this mess. National. They are the ones that created the high debt model and racial separatism we are staring down the barrel of in Auckland City.

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  53. OneTrack (3,114 comments) says:

    Dead right kev

    But i do blame len brown he is the one who is wasting money like a drunken sailor

    Maybe you are right Rodney didn’t plan on a spendthrift socialist going out of control

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  54. Pete George (23,591 comments) says:

    Eric Crampton disagrees with DPF on this in a post Brownean motion:

    There is one big rule in local public finance. Do not use local income taxes to fund city governments.

    Bottom line: income taxes are a reasonable way of funding redistribution from rich to poor. Rich people prefer not having to pay them. So, run your big income redistribution programmes at the national level, funded by income taxes, and leave local government to provide local public goods, funded by land or property taxes.

    User charges for some Council services can make sense. If Gerry Brownlee hadn’t somehow banned Auckland from putting in congestion charging, that would have been a good one for Auckland. But local income taxes are a pretty bad idea.

    More: http://offsettingbehaviour.blogspot.co.nz/2014/03/brownean-motion.html

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  55. Brian of Mt Wgtn (22 comments) says:

    If councils especially Auckland went back to core functions then they would not be so financially in trouble. If they stopped wasting money on things that have nothing to do with water, sewerage, rubbish and roads like parades and the like then we would be better off. Get back to what local councils were set up for not all this other crap.

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